DOVER, Del., Aug. 8, 2019 /PRNewswire/ -- Chesapeake Utilities
Corporation (NYSE: CPK) ("Chesapeake Utilities" or the "Company")
today announced second quarter financial results. The Company's net
income for the quarter ended June 30, 2019 was $8.3 million, compared to $6.4 million for the same quarter of 2018.
Earnings per share ("EPS") for the quarter ended June 30, 2019
were $0.50, compared to $0.39 per share for the same quarter of 2018.
Higher earnings for the second quarter primarily reflect
contributions from recently completed and ongoing pipeline
expansion projects, organic growth in the natural gas distribution
operations and lower operating expenses. These increases were
partially offset by lower results from Peninsula Energy Services
Company, Inc. ("PESCO") and higher interest expense. The absence of
a one-time non-recurring severance charge recorded in the second
quarter of 2018, was offset by the impact of warmer weather in the
second quarter of 2019.
For the six months ended June 30, 2019, the Company
reported net income of $37.0 million, or $2.25 per
share. This represents an increase of $3.7
million or $0.22 per share compared to the same
period in 2018. Year-to-date earnings were impacted by the factors
noted above, along with incremental margin from the acquisition of
certain assets of Marlin Gas Transport, Inc. ("Marlin Gas
Transport") and R. F. Ohl Fuel Oil, Inc. ("Ohl"), a Florida Public
Service Commission ("PSC") regulatory order that enabled the
Company to retain tax savings associated with lower federal tax
rates resulting from the United States Tax Cuts and Jobs Act
("TCJA") in several natural gas distribution operations and
continued growth in gross margin from Aspire Energy of Ohio ("Aspire Energy"). These increases were
partially offset by lower results for PESCO, lower energy
consumption due to warmer weather in the Company's service
territories, and higher interest expense. A detailed
discussion of operating results begins on page 3.
"In the first half of 2019, we have delivered strong financial
results to our shareholders driven by our organic growth
initiatives and increased margin from the Marlin Gas Transport and
Ohl assets we acquired at the end of 2018. The unwavering
commitment of our employees to provide safe, clean, reliable energy
services while growing the footprint of our businesses and
continually generating increased financial results is truly
impressive," stated Jeffry M.
Householder, President and Chief Executive Officer.
"As we move into the second half of 2019, I'm excited to continue
working with such a determined group of employees in further
expanding the footprint of our existing businesses and realizing
new investment opportunities like the West Palm Beach expansion, Del-Mar Energy
Pathway and our recently announced Callahan Intrastate Pipeline
project," added Mr. Householder.
Significant Items Impacting Earnings
Results for the three and six months ended June 30, 2019
and 2018 were impacted by the following significant items:
For the Three
Months Ended June 30,
|
2019
|
|
2018
|
(in thousands,
except per share data)
|
Net
Income
|
|
EPS
|
|
Net
Income
|
|
EPS
|
Reported (GAAP)
Earnings
|
$
|
8,304
|
|
|
$
|
0.50
|
|
|
$
|
6,387
|
|
|
$
|
0.39
|
|
Change in unrealized
mark-to-market ("MTM") activity
|
(41)
|
|
|
—
|
|
|
(251)
|
|
|
(0.02)
|
|
Nonrecurring
separation expenses associated with a former executive
|
—
|
|
|
—
|
|
|
1,421
|
|
|
0.09
|
|
Adjusted
(Non-GAAP) Earnings**
|
$
|
8,263
|
|
|
$
|
0.50
|
|
|
$
|
7,557
|
|
|
$
|
0.46
|
|
Adjusted earnings for the second quarter of 2019 were
$8.3 million, or $0.50 per share, an increase of 8.7 percent
compared to $7.6 million, or
$0.46 per share, for the second
quarter of 2018.
For the Six Months
Ended June 30,
|
2019
|
|
2018
|
(in thousands,
except per share data)
|
Net
Income
|
|
EPS
|
|
Net
Income
|
|
EPS
|
Reported (GAAP)
Earnings
|
$
|
36,968
|
|
|
$
|
2.25
|
|
|
$
|
33,241
|
|
|
$
|
2.03
|
|
Change in unrealized
MTM activity
|
38
|
|
|
—
|
|
|
(4,229)
|
|
|
(0.26)
|
|
2018 portion of the
retained tax savings for certain Florida natural gas distribution
operations associated with the TCJA income tax rate
reduction
|
(990)
|
|
|
(0.06)
|
|
|
—
|
|
|
—
|
|
Nonrecurring
separation expenses associated with a former executive
|
—
|
|
|
—
|
|
|
1,421
|
|
|
0.09
|
|
Adjusted
(Non-GAAP) Earnings
|
$
|
36,016
|
|
|
$
|
2.19
|
|
|
$
|
30,433
|
|
|
$
|
1.86
|
|
For the six months ended June 30,
2019, adjusted earnings were $36.0
million, or $2.19 per share,
an increase of 17.7 percent compared to $30.4 million, or $1.86 per share, for the six months ended
June 30, 2018.
*Unless otherwise noted, earnings per share information is
presented on a diluted basis.
**This press release includes references to non-Generally
Accepted Accounting Principles ("GAAP") financial measures,
including gross margin, adjusted earnings and adjusted EPS. A
"non-GAAP financial measure" is generally defined as a numerical
measure of a company's historical or future performance that
includes or excludes amounts, or that is subject to adjustments, so
as to be different from the most directly comparable measure
calculated or presented in accordance with GAAP. Our
management believes certain non-GAAP financial measures, when
considered together with GAAP financial measures, provide
information that is useful to investors in understanding
period-over-period operating results separate and apart from items
that may, or could, have a disproportionately positive or negative
impact on results in any particular period.
The Company calculates "gross margin" by deducting the cost
of sales from operating revenue. Cost of sales includes the
purchased fuel cost for natural gas, electricity and propane, and
the cost of labor spent on direct revenue-producing activities and
excludes depreciation, amortization and accretion. Other companies
may calculate gross margin in a different manner. Gross margin
should not be considered an alternative to operating income or net
income, both of which are determined in accordance with GAAP.
The Company believes that gross margin, although a non-GAAP
measure, is useful and meaningful to investors as a basis for
making investment decisions. It provides investors with
information that demonstrates the profitability achieved by the
Company under its allowed rates for regulated operations and under
its competitive pricing structures for unregulated
businesses. The Company's management uses gross margin in
measuring its business units' performance. The Company calculates
"adjusted earnings" by adjusting reported (GAAP) earnings to
exclude the impact of certain significant non-cash items, including
the impact of unrealized MTM gains (losses) and one-time charges,
such as severance charges, and any prior year tax savings retained
by our regulated businesses as a result of current year regulatory
authorizations. The Company calculates "adjusted EPS" by
dividing adjusted earnings by the weighted average common shares
outstanding.
Operating Results
for the Quarters Ended June 30, 2019 and 2018
|
|
Consolidated
Results
|
|
|
|
|
|
|
|
Three Months
Ended
June
30,
|
|
|
|
|
(in
thousands)
|
2019
|
|
2018
|
|
Change
|
|
Percent
Change
|
Gross
margin
|
$
|
70,110
|
|
|
$
|
67,261
|
|
|
$
|
2,849
|
|
|
4.2
|
%
|
Depreciation,
amortization and property taxes
|
16,124
|
|
|
13,749
|
|
|
2,375
|
|
|
17.3
|
%
|
Other operating
expenses
|
36,550
|
|
|
40,264
|
|
|
(3,714)
|
|
|
(9.2)
|
%
|
Operating
income
|
$
|
17,436
|
|
|
$
|
13,248
|
|
|
$
|
4,188
|
|
|
31.6
|
%
|
Operating income during the second quarter of 2019 increased by
$4.2 million, or 31.6 percent,
compared to the same period in 2018. The increase in operating
income primarily reflects strong performance by the Company's
natural gas transmission and distribution operations and a
$2.2 million decrease in operating
expenses which excludes the one-time nonrecurring severance charge
recorded in 2018 associated with a former company executive.
A $1.8 million decrease in operating
income at PESCO partially offset these gains. In addition,
the absence of the one-time nonrecurring severance charge recorded
in 2018 associated with a former company executive, largely offset
lower gross margin due to the impact of warmer weather on the
Delmarva Peninsula and Ohio
operations.
Regulated
Energy Segment
|
|
|
|
|
|
|
|
Three Months
Ended
June 30,
|
|
|
|
|
(in
thousands)
|
2019
|
|
2018
|
|
Change
|
|
Percent
Change
|
Gross
margin
|
$
|
55,086
|
|
|
$
|
50,494
|
|
|
$
|
4,592
|
|
|
9.1
|
%
|
Depreciation,
amortization and property taxes
|
13,087
|
|
|
11,161
|
|
|
1,926
|
|
|
17.3
|
%
|
Other operating
expenses
|
23,247
|
|
|
25,029
|
|
|
(1,782)
|
|
|
(7.1)
|
%
|
Operating
income
|
$
|
18,752
|
|
|
$
|
14,304
|
|
|
$
|
4,448
|
|
|
31.1
|
%
|
Operating income for the Regulated Energy segment for the three
months ended June 30, 2019 was
$18.8 million, an increase of
$4.4 million compared to the same
period in 2018. The increased operating income resulted
primarily from increased gross margin of $4.6 million. Depreciation, amortization,
and property taxes expense increased by $1.9
million, and was offset by a decrease of $1.8 million in other operating expenses.
The key components of the increase in gross margin are shown
below:
(in
thousands)
|
|
Eastern Shore and
Peninsula Pipeline service expansions (including related Florida
natural gas distribution operation expansions)
|
$
|
3,680
|
|
Natural gas
distribution growth (excluding service expansions)
|
867
|
|
Electric operations
consumption growth
|
316
|
|
Florida Gas
Reliability and Infrastructure Program ("GRIP")
|
310
|
|
TCJA impact primarily
from retained tax savings from Florida natural gas distribution
operations
|
255
|
|
Sandpiper Energy,
Inc.'s (Sandpiper) margin from natural gas conversions
|
231
|
|
Decreased customer
consumption - primarily due to warmer weather
|
(1,159)
|
|
Other
variances
|
92
|
|
Quarter-over-quarter increase in gross
margin
|
$
|
4,592
|
|
The major components of the decrease in other operating expenses
are as follows:
(in
thousands)
|
|
Outside services,
regulatory, facilities and maintenance costs
|
$
|
(1,466)
|
|
Incentive
compensation costs (including timing of accruals)
|
(328)
|
|
Payroll, benefits and
other employee-related expenses(1)
|
(257)
|
|
Other
variances
|
269
|
|
Quarter-over-quarter decrease in other operating
expenses
|
$
|
(1,782)
|
|
|
(1) Since the Company self-insures
for healthcare costs, benefits costs fluctuate depending upon filed
claims.
|
Unregulated
Energy Segment
|
|
|
|
|
|
|
|
Three Months
Ended
June
30,
|
|
|
|
|
(in
thousands)
|
2019
|
|
2018
|
|
Change
|
|
Percent
Change
|
Gross
margin
|
$
|
15,121
|
|
|
$
|
16,915
|
|
|
$
|
(1,794)
|
|
|
(10.6)
|
%
|
Depreciation,
amortization and property taxes
|
3,003
|
|
|
2,553
|
|
|
450
|
|
|
17.6
|
%
|
Other operating
expenses
|
13,466
|
|
|
13,872
|
|
|
(406)
|
|
|
(2.9)
|
%
|
Operating (loss)
income
|
$
|
(1,348)
|
|
|
$
|
490
|
|
|
$
|
(1,838)
|
|
|
NMF
|
|
|
Non-Meaningful Figure
(NMF)
|
Given the impact of PESCO on the Unregulated Energy segment, the
Company continues to present the segment excluding PESCO's
results:
Unregulated Energy
Segment, excluding PESCO
|
|
|
|
|
|
|
|
Three Months
Ended
June 30,
|
|
|
|
|
(in
thousands)
|
2019
|
|
2018
|
|
Change
|
|
Percent
Change
|
Gross
margin
|
$
|
14,380
|
|
|
$
|
14,309
|
|
|
$
|
71
|
|
|
0.5
|
%
|
Depreciation,
amortization and property taxes
|
2,850
|
|
|
2,399
|
|
|
451
|
|
|
18.8
|
%
|
Other operating
expenses
|
11,805
|
|
|
12,108
|
|
|
(303)
|
|
|
(2.5)
|
%
|
Operating
loss
|
$
|
(275)
|
|
|
$
|
(198)
|
|
|
$
|
(77)
|
|
|
38.9
|
%
|
Excluding PESCO, operating loss for the Unregulated Energy
segment increased by $0.1 million for
the three months ended June 30, 2019, compared to the same
period in 2018. The increased operating loss was driven by
$0.5 million in higher depreciation,
amortization and property taxes, partially offset by a $0.1 million increase in gross margin and
$0.3 million in lower other operating
expenses. While Marlin Gas Services, LLC ("Marlin Gas
Services"), the Company's newly created subsidiary, generated an
additional $1.0 million of margin for
the segment, this was largely offset by warmer weather during the
quarter which decreased customer consumption in the propane
operations and Aspire Energy.
The major components of the increase in gross margin are shown
below:
(in
thousands)
|
|
|
Marlin Gas Services
(assets acquired in December 2018)
|
|
$
|
1,030
|
|
Propane
Operations
|
|
|
Ohl acquisition
(assets acquired in December 2018)
|
|
112
|
|
Decreased customer
consumption - primarily due to warmer weather
|
|
(818)
|
|
Decrease in retail
and wholesale propane margins
|
|
(166)
|
|
Aspire
Energy
|
|
|
Rate
increases
|
|
203
|
|
Decreased customer
consumption - primarily due to warmer weather
|
|
(104)
|
|
Other
variances
|
|
(186)
|
|
Quarter-over-quarter increase in gross
margin
|
|
$
|
71
|
|
The major components of the decrease in other operating expenses
are as follows:
(in
thousands)
|
|
Operating expenses
for Marlin Gas Services and Ohl (Assets acquired in December 2018)
including costs to expand the future growth prospects for the
businesses (1)
|
$
|
835
|
|
Outside services and
facilities maintenance costs
|
(469)
|
|
Payroll, benefits and
other employee-related expenses(2)
|
(361)
|
|
Incentive
compensation costs (including timing of accruals)
|
(239)
|
|
Other
variances
|
(69)
|
|
Quarter-over-quarter decrease in other operating
expenses
|
$
|
(303)
|
|
|
(1) The Ohl and Marlin Gas Services
other operating expenses have been aggregated and are excluded from
the expense changes shown in the remainder of the table.
|
(2) Since the Company self-insures
for healthcare costs, benefits costs fluctuate depending upon filed
claims.
|
PESCO
|
|
|
|
|
|
|
|
Three Months
Ended
June 30,
|
|
|
|
|
(in
thousands)
|
2019
|
|
2018
|
|
Change
|
|
Percent
Change
|
Gross
margin
|
$
|
741
|
|
|
$
|
2,606
|
|
|
$
|
(1,865)
|
|
|
(71.6)
|
%
|
Depreciation,
amortization and property taxes
|
153
|
|
|
154
|
|
|
(1)
|
|
|
(0.6)
|
%
|
Other operating
expenses
|
1,661
|
|
|
1,764
|
|
|
(103)
|
|
|
(5.8)
|
%
|
Operating (loss)
income
|
$
|
(1,073)
|
|
|
$
|
688
|
|
|
$
|
(1,761)
|
|
|
NMF
|
|
Operating income for PESCO decreased by $1.8 million for the three months ended
June 30, 2019, compared to the same period in 2018. The
decline in operating income was driven by a $1.9 million decrease in PESCO's gross margin
compared to the same period in 2018 resulting from the
following:
(in
thousands)
|
|
Increased supply
costs
|
$
|
(742)
|
|
Absence of
nonrecurring margin in 2018 associated with the Southeast
portfolio
|
(642)
|
|
Net impact of PESCO's
MTM activity
|
(302)
|
|
Other
variances
|
(179)
|
|
Quarter-over-quarter decrease in gross margin for
PESCO
|
$
|
(1,865)
|
|
Operating Results
for the Six Months Ended June 30, 2019 and 2018
|
|
Consolidated
Results
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
(in
thousands)
|
2019
|
|
2018
|
|
Change
|
|
Percent
Change
|
Gross
margin
|
$
|
171,507
|
|
|
$
|
158,560
|
|
|
$
|
12,947
|
|
|
8.2
|
%
|
Depreciation,
amortization and property taxes
|
31,628
|
|
|
27,447
|
|
|
4,181
|
|
|
15.2
|
%
|
Other operating
expenses
|
78,450
|
|
|
77,459
|
|
|
991
|
|
|
1.3
|
%
|
Operating
income
|
$
|
61,429
|
|
|
$
|
53,654
|
|
|
$
|
7,775
|
|
|
14.5
|
%
|
Operating income during the six months ended June 30, 2019
increased by $7.8 million, or 14.5
percent, compared to the same period in 2018. The increase in
operating income reflects continued strong growth across the
Company, generated by organic growth within existing businesses,
recent expansion investments, regulatory initiatives and
rate/pricing mechanisms, the successful integration of the Ohl
acquisition and strong performance of Marlin Gas Services.
Regulated
Energy Segment
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
(in
thousands)
|
2019
|
|
2018
|
|
Change
|
|
Percent
Change
|
Gross
margin
|
$
|
122,188
|
|
|
$
|
111,656
|
|
|
$
|
10,532
|
|
|
9.4
|
%
|
Depreciation,
amortization and property taxes
|
25,618
|
|
|
22,317
|
|
|
3,301
|
|
|
14.8
|
%
|
Other operating
expenses
|
48,801
|
|
|
48,324
|
|
|
477
|
|
|
1.0
|
%
|
Operating
income
|
$
|
47,769
|
|
|
$
|
41,015
|
|
|
$
|
6,754
|
|
|
16.5
|
%
|
Operating income for the Regulated Energy segment for the six
months ended June 30, 2019 was
$47.8 million, an increase of
$6.8 million or 16.5 percent,
compared to the same period in 2018. The increase in
operating income resulted from $10.5
million in additional gross margin, offset by $3.3 million in higher depreciation, amortization
and property taxes and a $0.5 million
increase in other operating expenses. On February 25, 2019, the Florida PSC issued a final
order regarding the treatment of the TCJA, allowing us to retain
the savings associated with lower federal tax rates for certain of
our natural gas distribution operations. As a result,
$1.3 million in reserves for customer
refunds, recorded in 2018, were reversed in the first quarter of
2019. Excluding the impact of the reversal, gross margin and
operating income for the six months ended June 30, 2019 increased by $9.2 million and $5.4
million, or 8.2 percent and 13.2 percent, respectively.
The key components of the increase in gross margin are shown
below:
(in
thousands)
|
|
Eastern Shore and
Peninsula Pipeline service expansions (including related Florida
natural gas distribution operation expansions)
|
$
|
8,140
|
|
Natural gas
distribution - customer growth (excluding service
expansions)
|
2,253
|
|
2018 retained tax
savings for certain Florida natural gas distribution
operations
|
1,321
|
|
TCJA impact -
primarily from the 2019 retained tax savings for certain Florida
natural gas operations
|
810
|
|
Sandpiper's margin
from natural gas conversions
|
614
|
|
Florida
GRIP
|
534
|
|
Decreased customer
consumption - primarily due to warmer weather
|
(2,841)
|
|
Other
variances
|
(299)
|
|
Period-over-period
increase in gross margin
|
$
|
10,532
|
|
The major components of the increase in other operating expenses
are as follows:
(in
thousands)
|
|
Payroll, benefits and
other employee-related expenses(1)
|
$
|
1,619
|
|
Incentive
compensation costs (including timing of accruals)
|
331
|
|
Outside services and
regulatory costs
|
(1,070)
|
|
Facilities
maintenance costs
|
(1,005)
|
|
Other
variances
|
602
|
|
Period-over-period
increase in other operating expenses
|
$
|
477
|
|
|
(1) Since the Company self-insures
for healthcare costs, benefits costs fluctuate depending upon filed
claims.
|
Unregulated
Energy Segment
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
(in
thousands)
|
2019
|
|
2018
|
|
Change
|
|
Percent
Change
|
Gross
margin
|
$
|
49,523
|
|
|
$
|
47,216
|
|
|
$
|
2,307
|
|
|
4.9
|
%
|
Depreciation,
amortization and property taxes
|
5,942
|
|
|
5,059
|
|
|
883
|
|
|
17.5
|
%
|
Other operating
expenses
|
29,953
|
|
|
27,983
|
|
|
1,970
|
|
|
7.0
|
%
|
Operating
income
|
$
|
13,628
|
|
|
$
|
14,174
|
|
|
$
|
(546)
|
|
|
(3.9)
|
%
|
The Company continues to present the Unregulated Energy segment
excluding PESCO's results:
Unregulated Energy
Segment, excluding PESCO
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
(in
thousands)
|
2019
|
|
2018
|
|
Change
|
|
Percent
Change
|
Gross
margin
|
$
|
46,922
|
|
|
$
|
43,435
|
|
|
$
|
3,487
|
|
|
8.0
|
%
|
Depreciation,
amortization and property taxes
|
5,641
|
|
|
4,757
|
|
|
884
|
|
|
18.6
|
%
|
Other operating
expenses
|
26,048
|
|
|
24,428
|
|
|
1,620
|
|
|
6.6
|
%
|
Operating
income
|
$
|
15,233
|
|
|
$
|
14,250
|
|
|
$
|
983
|
|
|
6.9
|
%
|
Excluding PESCO, operating income for the Unregulated Energy
segment increased by $1.0 million for
the six months ended June 30, 2019, compared to the same
period in 2018. The increase in operating income was driven by
$3.5 million in additional gross
margin, partially offset by $1.6
million in higher operating expenses and $0.9 million in higher depreciation and
taxes.
The major components of the $3.5
million increase in gross margin are shown below:
(in
thousands)
|
|
|
Marlin Gas Services
(acquired assets of Marlin Gas Transport in December
2018)
|
|
$
|
3,359
|
|
Propane
Operations
|
|
|
Increased retail
margins per gallon
|
|
1,159
|
|
Ohl acquisition
(assets acquired in December 2018)
|
|
588
|
|
Decrease in customer
consumption due to the absence of the 2018 Bomb Cyclone and warmer
weather in 2019
|
|
(1,623)
|
|
Lower wholesale
propane margins and sales
|
|
(534)
|
|
Aspire
Energy
|
|
|
Rate
increases
|
|
892
|
|
Customer consumption
growth
|
|
200
|
|
Other
variances
|
|
(554)
|
|
Period-over-period
increase in gross margin
|
|
$
|
3,487
|
|
The major components of the increase in other operating expenses
are as follows:
(in
thousands)
|
|
Operating expenses
for Marlin Gas Services and Ohl (Assets acquired in December 2018)
including costs to expand the future growth prospects for the
businesses (1)
|
$
|
1,689
|
|
Incentive
compensation costs (including timing of accruals)
|
255
|
|
Outside
services
|
117
|
|
Facilities
maintenance costs
|
(336)
|
|
Payroll, benefits and
other employee-related expenses(2)
|
(39)
|
|
Other
variances
|
(66)
|
|
Period-over-period
increase in other operating expenses
|
$
|
1,620
|
|
|
(1) The Ohl and Marlin Gas Services
other operating expenses have been aggregated and are excluded from
the expense changes shown in the remainder of the table.
|
(2) Since the Company self-insures
for healthcare costs, benefits costs fluctuate depending upon filed
claims.
|
PESCO
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
(in
thousands)
|
2019
|
|
2018
|
|
Change
|
|
Percent
Change
|
Gross
margin
|
$
|
2,601
|
|
|
$
|
3,781
|
|
|
$
|
(1,180)
|
|
|
(31.2)
|
%
|
Depreciation,
amortization and property taxes
|
301
|
|
|
302
|
|
|
(1)
|
|
|
(0.3)
|
%
|
Other operating
expenses
|
3,905
|
|
|
3,555
|
|
|
350
|
|
|
9.8
|
%
|
Operating
loss
|
$
|
(1,605)
|
|
|
$
|
(76)
|
|
|
$
|
(1,529)
|
|
|
NMF
|
|
For the six months ended June 30, 2019, PESCO's gross
margin decreased by $1.2 million
compared to the same period in 2018. Lower gross margin from
PESCO for the six months ended June 30,
2019 resulted from the following:
(in
thousands)
|
|
Net impact of
extraordinary costs associated with the 2018 Bomb Cyclone for the
Mid-Atlantic wholesale portfolio (1)
|
$
|
5,545
|
|
Net impact of PESCO's
MTM activity
|
(5,892)
|
|
Absence of
nonrecurring margin in 2018 associated with the Southeast
portfolio
|
(642)
|
|
Other
variances
|
(191)
|
|
Period-over-period
decrease in gross margin for PESCO
|
$
|
(1,180)
|
|
|
(1) The
2018 Bomb Cyclone refers to the high-intensity winter storms in
early January 2018 that impacted the Mid-Atlantic region and had a
residual impact on our businesses through the month of
February. The exceedingly high demand and associated impacts
on pipeline capacity and gas supply in the Mid-Atlantic region
created significant, unusual costs for PESCO. While such concerted
impacts are not expected to occur frequently, our management
revisited and refined its risk management strategies and
implemented additional controls.
|
Forward-Looking Statements
Matters included in this release may include forward-looking
statements that involve risks and uncertainties. Actual results may
differ materially from those in the forward-looking statements.
Please refer to the Safe Harbor for Forward-Looking Statements in
the Company's 2018 Annual Report on Form 10-K for further
information on the risks and uncertainties related to the Company's
forward-looking statements.
Conference Call
Chesapeake Utilities will host a conference call on Friday,
August 9, 2019 at 10:30 a.m. Eastern
Time to discuss the Company's financial results for the
three and six months ended June 30, 2019. To participate
in this call, dial 855.801.6270 and reference Chesapeake Utilities'
2019 Second Quarter Results Conference Call. To access the
replay recording of this call, the accompanying transcript, and
other pertinent quarterly information, use the link CPK -
Conference Call Audio Replay, or visit the Investors/Events and
Presentations section of Company's website at www.chpk.com.
About Chesapeake Utilities Corporation
Chesapeake Utilities is a diversified energy company engaged in
natural gas distribution, transmission and marketing; electricity
generation and distribution; propane gas distribution; and other
businesses. Information about Chesapeake Utilities and its family
of businesses is available at http://www.chpk.com or through its
Investor Relations (IR) App.
Please note that Chesapeake Utilities Corporation is not
affiliated with Chesapeake Energy, an oil and natural gas
exploration company headquartered in Oklahoma City, Oklahoma.
For more information, contact:
Beth W. Cooper
Executive Vice President, Chief Financial Officer and Assistant
Corporate Secretary
302.734.6799
Financial
Summary (in thousands, except per share
data)
|
|
|
|
|
|
Three Months
Ended
|
|
Six Months
Ended
|
|
June
30,
|
|
June
30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Gross
Margin
|
|
|
|
|
|
|
|
Regulated
Energy segment
|
$
|
55,086
|
|
|
$
|
50,494
|
|
|
$
|
122,188
|
|
|
$
|
111,656
|
|
Unregulated
Energy segment
|
15,121
|
|
|
16,915
|
|
|
49,523
|
|
|
47,216
|
|
Other
businesses and eliminations
|
(97)
|
|
|
(148)
|
|
|
(204)
|
|
|
(312)
|
|
Total Gross
Margin
|
$
|
70,110
|
|
|
$
|
67,261
|
|
|
$
|
171,507
|
|
|
$
|
158,560
|
|
|
|
|
|
|
|
|
|
Operating Income
(Loss)
|
|
|
|
|
|
|
|
Regulated Energy segment
|
$
|
18,752
|
|
|
$
|
14,304
|
|
|
$
|
47,769
|
|
|
$
|
41,015
|
|
Unregulated Energy segment
|
(1,348)
|
|
|
490
|
|
|
13,628
|
|
|
14,174
|
|
Other
businesses and eliminations
|
32
|
|
|
(1,546)
|
|
|
32
|
|
|
(1,535)
|
|
Total
Operating Income (Loss)
|
17,436
|
|
|
13,248
|
|
|
61,429
|
|
|
53,654
|
|
|
|
|
|
|
|
|
|
Other expense,
net
|
(316)
|
|
|
(262)
|
|
|
(361)
|
|
|
(194)
|
|
Interest
Charges
|
5,655
|
|
|
3,881
|
|
|
11,365
|
|
|
7,545
|
|
Pre-tax
Income
|
11,465
|
|
|
9,105
|
|
|
49,703
|
|
|
45,915
|
|
Income
Taxes
|
3,161
|
|
|
2,718
|
|
|
12,735
|
|
|
12,674
|
|
Net
Income
|
$
|
8,304
|
|
|
$
|
6,387
|
|
|
$
|
36,968
|
|
|
$
|
33,241
|
|
|
|
|
|
|
|
|
|
Earnings Per Share
of Common Stock
|
|
|
|
|
|
|
|
Basic
|
$
|
0.51
|
|
|
$
|
0.39
|
|
|
$
|
2.26
|
|
|
$
|
2.03
|
|
Diluted
|
$
|
0.50
|
|
|
$
|
0.39
|
|
|
$
|
2.25
|
|
|
$
|
2.03
|
|
Financial Summary Highlights
Key variances, between the three months ended June 30, 2018 and 2019, included:
|
|
|
|
|
|
|
(in thousands,
except per share data)
|
|
Pre-tax
Income
|
|
Net
Income
|
|
Earnings
Per Share
|
Second Quarter of
2018 Reported Results
|
|
$
|
9,105
|
|
|
$
|
6,387
|
|
|
$
|
0.39
|
|
|
|
|
|
|
|
|
Adjusting for
Unusual Items:
|
|
|
|
|
|
|
Nonrecurring
separation expenses associated with a former executive
|
|
1,548
|
|
|
1,421
|
|
|
0.09
|
|
Decreased customer
consumption - primarily due to warmer weather
|
|
(2,081)
|
|
|
(1,507)
|
|
|
(0.09)
|
|
Net impact of PESCO's
MTM activity
|
|
(302)
|
|
|
(210)
|
|
|
(0.02)
|
|
|
|
(835)
|
|
|
(296)
|
|
|
(0.02)
|
|
|
|
|
|
|
|
|
Increased
(Decreased) Gross Margins:
|
|
|
|
|
|
|
Eastern Shore and
Peninsula Pipeline service expansions (including related Florida
natural gas distribution operation expansions)*
|
|
3,680
|
|
|
2,666
|
|
|
0.16
|
|
Margin contribution
from Marlin Gas Services (acquired assets of Marlin Gas Transport
in December 2018) and Ohl acquisition (assets acquired in December
2018)*
|
|
1,142
|
|
|
827
|
|
|
0.05
|
|
Natural gas
distribution growth (excluding service expansions)
|
|
867
|
|
|
628
|
|
|
0.04
|
|
Florida
GRIP*
|
|
310
|
|
|
225
|
|
|
0.01
|
|
TCJA impact -
primarily from the 2019 retained tax savings for certain Florida
natural gas operations*
|
|
255
|
|
|
185
|
|
|
0.01
|
|
Sandpiper's margin
from natural gas conversions
|
|
231
|
|
|
167
|
|
|
0.01
|
|
Aspire Energy rate
increases
|
|
203
|
|
|
147
|
|
|
0.01
|
|
Other margin change
for PESCO operations
|
|
(1,563)
|
|
|
(1,132)
|
|
|
(0.07)
|
|
|
|
5,125
|
|
|
3,713
|
|
|
0.22
|
|
|
|
|
|
|
|
|
(Increased)
Decreased Operating Expenses (Excluding Cost of
Sales):
|
|
|
|
|
|
|
Depreciation, asset
removal and property tax costs due to growth investments
|
|
(2,055)
|
|
|
(1,488)
|
|
|
(0.09)
|
|
Operating expenses
for Marlin Gas Services and Ohl (Assets acquired in December 2018)
including costs to expand the future growth prospects for the
businesses
|
|
(1,155)
|
|
|
(837)
|
|
|
(0.05)
|
|
Outside services,
regulatory, and facilities maintenance costs
|
|
1,866
|
|
|
1,351
|
|
|
0.08
|
|
Payroll, benefits and
other employee-related expenses
|
|
678
|
|
|
491
|
|
|
0.03
|
|
Incentive
compensation costs (including timing of accruals)
|
|
512
|
|
|
371
|
|
|
0.03
|
|
|
|
(154)
|
|
|
(112)
|
|
|
—
|
|
|
|
|
|
|
|
|
Change in effective
tax rate
|
|
—
|
|
|
(100)
|
|
|
(0.01)
|
|
Interest
charges
|
|
(1,774)
|
|
|
(1,285)
|
|
|
(0.08)
|
|
Net other
changes
|
|
(2)
|
|
|
(3)
|
|
|
—
|
|
|
|
(1,776)
|
|
|
(1,388)
|
|
|
(0.09)
|
|
|
|
|
|
|
|
|
Second Quarter of
2019 Reported Results
|
|
$
|
11,465
|
|
|
$
|
8,304
|
|
|
$
|
0.50
|
|
|
*See
the Major Projects and Initiatives table later in this press
release.
|
Key variances, between the six months ended June 30, 2018 and 2019, included:
(in thousands,
except per share data)
|
|
Pre-tax
Income
|
|
Net
Income
|
|
Earnings
Per Share
|
Six Month Ended
June 30, 2018 Reported Results
|
|
$
|
45,915
|
|
|
$
|
33,241
|
|
|
$
|
2.03
|
|
|
|
|
|
|
|
|
Adjusting for
Unusual Items:
|
|
|
|
|
|
|
Nonrecurring
separation expenses associated with a former executive
|
|
1,548
|
|
|
1,421
|
|
|
0.09
|
|
2018 retained tax
savings for certain Florida natural gas operations*
|
|
1,321
|
|
|
990
|
|
|
0.06
|
|
Net impact of PESCO's
MTM activity
|
|
(5,892)
|
|
|
(4,267)
|
|
|
(0.26)
|
|
Decreased customer
consumption - primarily due to warmer weather
|
|
(4,264)
|
|
|
(3,171)
|
|
|
(0.19)
|
|
|
|
(7,287)
|
|
|
(5,027)
|
|
|
(0.30)
|
|
Increased
(Decreased) Gross Margins:
|
|
|
|
|
|
|
Eastern Shore and
Peninsula Pipeline service expansions (including new service in
Northwest Florida for related Florida natural gas distribution
operations)*
|
|
8,140
|
|
|
6,055
|
|
|
0.37
|
|
Absence of the 2018
Bomb Cyclone and capacity constraints cost for PESCO
|
|
5,545
|
|
|
4,124
|
|
|
0.25
|
|
Margin contribution
from Marlin Gas Services (acquired assets of Marlin Gas Transport)
and Ohl acquisition (assets acquired in December 2018)*
|
|
3,947
|
|
|
2,936
|
|
|
0.18
|
|
Natural gas
distribution growth (excluding service expansions)
|
|
2,253
|
|
|
1,675
|
|
|
0.10
|
|
Higher propane retail
margins per gallon
|
|
1,159
|
|
|
862
|
|
|
0.05
|
|
Aspire Energy rate
increases
|
|
892
|
|
|
664
|
|
|
0.04
|
|
TCJA impact -
primarily from the 2019 retained tax savings for certain Florida
natural gas operations*
|
|
810
|
|
|
602
|
|
|
0.04
|
|
Sandpiper's margin
from natural gas conversions
|
|
614
|
|
|
456
|
|
|
0.03
|
|
Florida
GRIP*
|
|
534
|
|
|
397
|
|
|
0.02
|
|
Other margin change
for PESCO operations
|
|
(832)
|
|
|
(619)
|
|
|
(0.04)
|
|
Wholesale propane
margins and sales
|
|
(534)
|
|
|
(398)
|
|
|
(0.02)
|
|
|
|
22,528
|
|
|
16,754
|
|
|
1.02
|
|
(Increased)
Decreased Other Operating Expenses (Excluding Cost of
Sales):
|
|
|
|
|
|
|
Depreciation, asset
removal and property tax costs due to new capital
investments
|
|
(3,559)
|
|
|
(2,647)
|
|
|
(0.16)
|
|
Operating expenses
for Marlin Gas Services and Ohl (Assets acquired in December 2018)
including costs to expand the future growth prospects for the
businesses
|
|
(2,312)
|
|
|
(1,720)
|
|
|
(0.10)
|
|
Payroll, benefits and
other employee-related expenses
|
|
(1,568)
|
|
|
(1,166)
|
|
|
(0.07)
|
|
Incentive
compensation costs (including timing of accruals)
|
|
(578)
|
|
|
(430)
|
|
|
(0.03)
|
|
Operating expenses to
support PESCO
|
|
(349)
|
|
|
(259)
|
|
|
(0.02)
|
|
Facilities
maintenance costs
|
|
1,201
|
|
|
893
|
|
|
0.05
|
|
Outside services and
regulatory costs
|
|
952
|
|
|
708
|
|
|
0.04
|
|
|
|
(6,213)
|
|
|
(4,621)
|
|
|
(0.29)
|
|
|
|
|
|
|
|
|
Change in effective
tax rate
|
—
|
|
|
516
|
|
|
0.03
|
|
Interest
Charges
|
|
(3,820)
|
|
|
(2,841)
|
|
|
(0.17)
|
|
Net other
changes
|
|
(1,420)
|
|
|
(1,054)
|
|
|
(0.07)
|
|
|
|
(5,240)
|
|
|
(3,379)
|
|
|
(0.21)
|
|
|
|
|
|
|
|
|
Six Month Ended
June 30, 2019 Reported Results
|
|
$
|
49,703
|
|
|
$
|
36,968
|
|
|
$
|
2.25
|
|
|
*See the
Major Projects and Initiatives table later in this press
release.
|
Recently Completed and Ongoing Major Projects and
Initiatives
The Company constantly pursues and develops
additional projects and initiatives to serve existing and new
customers, further grow its businesses and earnings, with the
intention to increase shareholder value. The following represent
the major projects/initiatives recently completed and currently
underway. In the future, the Company will add new projects and
initiatives to this table once negotiations are substantially final
and the associated earnings can be estimated.
|
|
Gross Margin for
the Period
|
|
|
Three Months
Ended
|
|
Six Months
Ended
|
|
Year
Ended
|
|
Estimate
for
|
Project/Initiative
|
|
June
30,
|
|
June
30,
|
|
December
31,
|
|
Fiscal
|
in
thousands
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
2018
|
|
2019
|
|
2020
|
Florida GRIP
(1)
|
|
$
|
3,530
|
|
|
$
|
3,220
|
|
|
$
|
6,904
|
|
|
$
|
6,370
|
|
|
$
|
13,323
|
|
|
$
|
14,172
|
|
|
$
|
15,491
|
|
2017 Eastern Shore
System Expansion - including interim services
|
|
3,645
|
|
|
859
|
|
|
8,445
|
|
|
3,117
|
|
|
9,103
|
|
|
16,183
|
|
|
15,799
|
|
Northwest Florida
Expansion (including related natural gas distribution
services)
|
|
1,691
|
|
|
1,147
|
|
|
3,289
|
|
|
1,152
|
|
|
4,350
|
|
|
6,500
|
|
|
6,500
|
|
Western Palm Beach
County, Florida Expansion
|
|
161
|
|
|
—
|
|
|
322
|
|
|
—
|
|
|
54
|
|
|
676
|
|
|
4,581
|
|
Marlin Gas
Services
|
|
1,030
|
|
|
—
|
|
|
3,359
|
|
|
—
|
|
|
110
|
|
|
5,400
|
|
|
6,300
|
|
Ohl Propane
Acquisition
|
|
112
|
|
|
—
|
|
|
588
|
|
|
—
|
|
|
—
|
|
|
1,200
|
|
|
1,236
|
|
Del-Mar Energy
Pathway - including interim services
|
|
189
|
|
|
—
|
|
|
353
|
|
|
—
|
|
|
—
|
|
|
725
|
|
|
3,039
|
|
Callahan Intrastate
Pipeline
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,250
|
|
Tax benefit retained
by certain Florida entities(2)
|
|
249
|
|
|
—
|
|
|
2,329
|
|
|
—
|
|
|
—
|
|
|
3,039
|
|
|
1,879
|
|
Total
|
|
$
|
10,607
|
|
|
$
|
5,226
|
|
|
$
|
25,589
|
|
|
$
|
10,639
|
|
|
$
|
26,940
|
|
|
$
|
47,895
|
|
|
$
|
57,075
|
|
|
(1) All periods shown
have been adjusted to reflect the lower customer rates as a result
of the TCJA. Lower customer rates are offset by the
corresponding decrease in federal income tax expense and have no
negative impact on net income.
|
(2) The amount
disclosed for the six months ended 2019 includes tax savings of
$1.3 million for the year ended December 31, 2018. The tax
savings were recorded in the first quarter of 2019 due to an order
by the Florida PSC allowing reversal of a TCJA refund reserve,
recorded in 2018, which increased gross margin for the six months
ended by that amount.
|
Major Projects and Initiatives
Florida GRIP
Florida GRIP is a natural gas pipe
replacement program approved by the Florida PSC that allows
automatic recovery, through rates, of costs associated with the
replacement of mains and services. Since the program's inception in
August 2012, the Company has invested
$135.2 million of capital
expenditures to replace 298 miles of qualifying distribution mains,
including $7.9 million of new pipes
during the first six months of 2019. GRIP generated additional
gross margin of $0.3 million and
$0.5 million for the three and six
months ended June 30, 2019,
respectively, compared to the same periods in 2018.
2017 Eastern Shore System Expansion
Eastern
Shore has substantially completed the construction of a system
expansion project that increased its capacity by 26 percent. Two
remaining segments are expected to be placed into service in
various phases during the third quarter of 2019. The project
generated $2.8 million and
$5.3 million in incremental gross
margin during the three and six months ended June 30, 2019, respectively, compared to the same
periods in 2018. The project is expected to produce gross
margin of approximately $16.2 million
in 2019; $15.8 million annually from
2020 through 2022; and $13.2 million
annually thereafter based on current customer capacity
commitments.
Northwest Florida Expansion
In May 2018, Peninsula Pipeline completed
construction of transmission lines, and our Florida natural gas division completed
construction of lateral distribution lines, to serve customers in
Northwest Florida. The project
generated incremental gross margin of $0.5
million and $2.1 million for
the three and six months ended June 30,
2019, respectively, compared to the same periods in 2018.
The estimated annual gross margin from this project is $6.5 million for 2019 and beyond, with the
opportunity for additional margin as the remaining capacity is
sold.
Western Palm Beach County,
Florida Expansion
Peninsula Pipeline is
constructing four transmission lines to bring natural gas to the
Company's distribution system in West
Palm Beach, Florida. The first phase of this project was
placed into service in December 2018
and generated $0.2 million and
$0.3 million in additional gross
margin for the three and six months ended June 30, 2019, respectively. The Company expects
to complete the remainder of the project in phases through early
2020, and estimates that it will generate gross margin of
$0.7 million in 2019 and $4.6 million annually thereafter.
Marlin Gas Services
In December 2018, the Company acquired certain
operating assets of Marlin Gas Transport, a supplier of mobile
compressed natural gas distribution and pipeline solutions, and
created Marlin Gas Services, a new subsidiary which offers
compressed natural gas solutions to supply interruption scenarios
and provides other unique applications where pipeline supplies are
unavailable or inadequate to meet customer requirements. Marlin Gas
Services generated $1.0 million and
$3.4 million of gross margin for the
three and six months ended June 30,
2019, respectively. The Company estimates that Marlin
Gas Services will generate additional gross margin of approximately
$5.4 million in 2019 and $6.3 million in 2020, and expects gross margin to
grow beyond 2020 as Marlin Gas Services continues to actively
expand the territories it serves as well as leverages its patented
technology to potentially serve liquefied natural gas
transportation needs.
Ohl Propane Acquisition
In December 2018, Sharp acquired certain propane
customers and operating assets of Ohl. Located between two of
Sharp's existing districts, Ohl provided propane distribution
service to approximately 2,500 residential and commercial customers
in Pennsylvania. The customers and assets acquired from Ohl
have been assimilated into Sharp. The operations acquired from Ohl
generated $0.1 million and
$0.6 million of incremental gross
margin for the three and six months ended June 30, 2019, respectively. The Company
estimates that this acquisition will generate additional gross
margin of approximately $1.2 million
for Sharp in 2019, with the potential for additional growth in
future years.
Del-Mar Energy Pathway
In September 2018, Eastern Shore filed for FERC
authorization to construct the Del-Mar Energy Pathway project to
provide an additional 14,300 dekatherms per day of capacity to four
customers. The project will provide additional natural gas
transmission pipeline infrastructure in eastern Sussex County, Delaware, and it will represent
the first extension of Eastern Shore's pipeline system into
Somerset County, Maryland. Interim
services in advance of this project generated $0.2 million and $0.4
million for the three and six months ended June 30, 2019, respectively. The estimated
annual gross margin from this project is approximately $0.7 million in 2019, $3.0
million in 2020, $4.6 million
in 2021 and $5.1 million annually
thereafter. Eastern Shore anticipates that this project will
be fully in-service by mid-2021, contingent upon FERC issuing
authorization for the project in the third quarter of 2019.
Callahan Intrastate Pipeline
In May 2018, Peninsula Pipeline announced its plan
to construct a jointly owned intrastate transmission pipeline with
Seacoast Gas Transmission in Nassau
County, Florida. The 26-mile pipeline, having an
initial capacity of 148,000 dekatherms per day, will serve growing
demand in both Nassau and
Duval counties, Florida. The
project is expected to be placed in-service during the third
quarter of 2020 and will generate gross margin for Peninsula
Pipeline of $2.3 million in 2020 and
$6.0 million annually thereafter.
Regulatory Initiatives
Florida Tax Savings Related to TCJA
In
February 2019, the Florida PSC issued
orders authorizing certain of the Company's natural gas
distribution operations to retain a portion of the tax savings
associated with the lower federal tax rates resulting from the
TCJA. In accordance with the PSC orders, the Company
recognized $1.3 million in margin
during the first quarter of 2019, reflecting the reversal of
reserves recorded during 2018. The Company expects the annual
savings beginning in 2019 to continue in future years, and
recognized additional margin of $0.2
million and $1.0 million
during the three and six months ended June 30, 2019,
respectively.
Other major factors influencing gross margin
Weather and Consumption
Weather conditions
accounted for a $2.1 million decrease
in gross margin during the second quarter of 2019, compared to the
same period in 2018. For the second quarter,
period-over-period heating degree-days ("HDD") declined 42 percent
on the Delmarva Peninsula and 19 percent in the Company's
Ohio service territory. For
the six months ended June 30, 2019, weather conditions
accounted for a $4.3 million decrease
in gross margin. Lower period-over-period HDD's in all of our
service territories and extreme conditions due to the "Bomb
Cyclone" in early 2018 reduced consumption in the first six months
of 2019 compared to the same period in 2018 impacting both our
Regulated and Unregulated Energy segments. The following
table summarizes HDD and cooling degree day ("CDD") variances from
the 10-year average HDD/CDD ("Normal") for the three and six months
ended June 30, 2019 and 2018.
|
Three Months
Ended
|
|
|
|
Six Months
Ended
|
|
|
|
June
30,
|
|
|
|
June
30,
|
|
|
|
2019
|
|
2018
|
|
Variance
|
|
2019
|
|
2018
|
|
Variance
|
Delmarva
|
|
|
|
|
|
|
|
|
|
|
|
Actual HDD
|
247
|
|
|
424
|
|
|
(177)
|
|
|
2,569
|
|
|
2,719
|
|
|
(150)
|
|
10-Year Average HDD
("Normal")
|
400
|
|
|
423
|
|
|
(23)
|
|
|
2,749
|
|
|
2,785
|
|
|
(36)
|
|
Variance from
Normal
|
(153)
|
|
|
1
|
|
|
|
|
(180)
|
|
|
(66)
|
|
|
|
Florida
|
|
|
|
|
|
|
|
|
|
|
|
Actual HDD
|
18
|
|
|
17
|
|
|
1
|
|
|
379
|
|
|
507
|
|
|
(128)
|
|
10-Year Average HDD
("Normal")
|
14
|
|
|
16
|
|
|
(2)
|
|
|
532
|
|
|
533
|
|
|
(1)
|
|
Variance from
Normal
|
4
|
|
|
1
|
|
|
|
|
(153)
|
|
|
(26)
|
|
|
|
Ohio
|
|
|
|
|
|
|
|
|
|
|
|
Actual HDD
|
535
|
|
|
662
|
|
|
(127)
|
|
|
3,531
|
|
|
3,652
|
|
|
(121)
|
|
10-Year Average HDD
("Normal")
|
607
|
|
|
614
|
|
|
(7)
|
|
|
3,652
|
|
|
3,683
|
|
|
(31)
|
|
Variance from
Normal
|
(72)
|
|
|
48
|
|
|
|
|
(121)
|
|
|
(31)
|
|
|
|
Florida
|
|
|
|
|
|
|
|
|
|
|
|
Actual CDD
|
1,086
|
|
|
952
|
|
|
134
|
|
|
1,220
|
|
|
1,091
|
|
|
129
|
|
10-Year Average CDD
("Normal")
|
975
|
|
|
969
|
|
|
6
|
|
|
1,072
|
|
|
1,058
|
|
|
14
|
|
Variance from
Normal
|
111
|
|
|
(17)
|
|
|
|
|
148
|
|
|
33
|
|
|
|
Natural Gas Distribution Margin Growth
New customer growth in the Company's natural gas distribution
operations generated $0.9 million and
$2.3 million of additional margin for
the three and six months ended June 30,
2019, respectively. The details for the three and six
months ended June 30, 2019 are provided in the following
table:
|
|
Three Months
Ended
|
|
Six Months
Ended
|
(in
thousands)
|
|
June 30,
2019
|
|
June 30,
2019
|
Customer
Growth:
|
|
|
|
|
Residential
|
|
$
|
446
|
|
|
$
|
1,085
|
|
Commercial and
industrial
|
|
421
|
|
|
1,168
|
|
Total Customer
Growth
|
|
$
|
867
|
|
|
$
|
2,253
|
|
The additional margin from new customers reflects an increase of
approximately 3.7 percent and 3.8 percent for the three and six
months ended June 30, 2019,
respectively, in the average number of residential customers served
on the Delmarva Peninsula, and approximately 3.8 percent and 3.5
percent growth in new residential customers served in Florida as well as an increase in the number
of commercial and industrial customers served.
Capital Investment Growth and Financing
The Company's capital expenditures were $72.9 million for the six months ended
June 30, 2019. The following table shows the 2019
capital expenditure forecast of $177.8
million by segment and by business line:
|
2019
|
(dollars in
thousands)
|
|
Regulated
Energy:
|
|
Natural gas
distribution
|
$
|
64,143
|
|
Natural gas
transmission
|
66,787
|
|
Electric
distribution
|
5,949
|
|
Total Regulated
Energy
|
136,879
|
|
Unregulated
Energy:
|
|
Propane
distribution
|
11,870
|
|
Energy
transmission
|
8,345
|
|
Other unregulated
energy
|
11,000
|
|
Total Unregulated
Energy
|
31,215
|
|
Other:
|
|
Corporate and other
businesses
|
9,705
|
|
Total Other
|
9,705
|
|
Total 2019 Forecasted
Capital Expenditures
|
$
|
177,799
|
|
The capital expenditure projection is subject to continuous
review and modification. Actual capital requirements may vary from
the above estimates due to a number of factors, including changing
economic conditions, customer growth in existing areas, regulation,
new growth or acquisition opportunities and availability of
capital. Historically, actual capital expenditures have typically
lagged behind the budgeted amounts.
Impact of Hurricane Michael
In October 2018, Hurricane Michael
passed through Florida Public Utilities Company's ("FPU") electric
distribution service territory in Northwest Florida. The hurricane caused
widespread and severe damage to FPU's infrastructure, resulting in
100 percent of its Northwest
Florida customers losing electrical service. FPU, after
exerting extraordinary hurricane restoration efforts, restored
service to those customers who were able to accept it. FPU
expended more than $65.0 million to
restore service, which has been recorded as new plant and
equipment, charged against FPU's accumulated depreciation or
charged against FPU's storm reserve. In conjunction with the
hurricane-related expenditures, the Company executed two 13-month
unsecured term loans as temporary financing, each in the amount of
$30.0 million. The interest cost
associated with these loans is LIBOR plus 75 basis points. One of
the term loans was executed in December
2018; the other was executed in January 2019. While there is a short-term
negative impact, the storm is not expected to have a significant
impact going forward, assuming recovery is granted through the
regulatory process. On August 7,
2019, the Company filed the necessary regulatory filings
seeking recovery of the restoration costs incurred, including
eligible financing costs. FPU's results for the six months
ended June 30, 2019 included interest expense of $0.5 million, or $0.4
million on an after-tax basis, associated with the
intermediate term loans discussed above.
The Company's target ratio of equity to total capitalization,
including short-term borrowings, is between 50 and 60 percent. The
Company's equity to total capitalization ratio, including short
term borrowings, was 45 percent as of June 30, 2019. Excluding
the funds expended for Hurricane Michael restoration activities,
the Company's equity to total capitalization ratio, including
short-term borrowings, would have been approximately 48
percent. The Company seeks to align permanent financing with
the in-service dates of its capital projects. The Company may
utilize more temporary short-term debt, when the financing cost is
attractive, as a bridge to the permanent long-term financing.
Chesapeake
Utilities Corporation and Subsidiaries
Condensed
Consolidated Statements of Income (Unaudited)
(in thousands,
except shares and per share data)
|
|
Three Months
Ended
|
|
Six Months
Ended
|
|
June
30,
|
|
June
30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Operating
Revenues
|
|
|
|
|
|
|
|
Regulated
Energy
|
$
|
73,403
|
|
|
$
|
70,504
|
|
|
$
|
177,021
|
|
|
$
|
179,897
|
|
Unregulated Energy
and other
|
57,500
|
|
|
66,160
|
|
|
181,498
|
|
|
196,123
|
|
Total Operating
Revenues
|
130,903
|
|
|
136,664
|
|
|
358,519
|
|
|
376,020
|
|
Operating
Expenses
|
|
|
|
|
|
|
|
Regulated Energy cost
of sales
|
18,317
|
|
|
20,010
|
|
|
54,833
|
|
|
68,241
|
|
Unregulated Energy
and other cost of sales
|
42,476
|
|
|
49,393
|
|
|
132,179
|
|
|
149,219
|
|
Operations
|
32,696
|
|
|
36,281
|
|
|
69,839
|
|
|
68,983
|
|
Maintenance
|
3,600
|
|
|
3,619
|
|
|
7,280
|
|
|
7,211
|
|
Gain from a
settlement
|
(130)
|
|
|
(130)
|
|
|
(130)
|
|
|
(130)
|
|
Depreciation and
amortization
|
11,609
|
|
|
9,839
|
|
|
22,684
|
|
|
19,543
|
|
Other
taxes
|
4,899
|
|
|
4,404
|
|
|
10,405
|
|
|
9,299
|
|
Total operating
expenses
|
113,467
|
|
|
123,416
|
|
|
297,090
|
|
|
322,366
|
|
Operating
Income
|
17,436
|
|
|
13,248
|
|
|
61,429
|
|
|
53,654
|
|
Other expense,
net
|
(316)
|
|
|
(262)
|
|
|
(361)
|
|
|
(194)
|
|
Interest
charges
|
5,655
|
|
|
3,881
|
|
|
11,365
|
|
|
7,545
|
|
Income Before
Income Taxes
|
11,465
|
|
|
9,105
|
|
|
49,703
|
|
|
45,915
|
|
Income
taxes
|
3,161
|
|
|
2,718
|
|
|
12,735
|
|
|
12,674
|
|
Net
Income
|
$
|
8,304
|
|
|
$
|
6,387
|
|
|
$
|
36,968
|
|
|
$
|
33,241
|
|
Weighted Average
Common Shares Outstanding:
|
|
|
|
|
|
|
|
Basic
|
16,401,028
|
|
|
16,369,641
|
|
|
16,393,022
|
|
|
16,360,540
|
|
Diluted
|
16,445,743
|
|
|
16,417,082
|
|
|
16,439,333
|
|
|
16,410,061
|
|
Earnings Per Share
of Common Stock:
|
|
|
|
|
|
|
|
Basic
|
$
|
0.51
|
|
|
$
|
0.39
|
|
|
$
|
2.26
|
|
|
$
|
2.03
|
|
Diluted
|
$
|
0.50
|
|
|
$
|
0.39
|
|
|
$
|
2.25
|
|
|
$
|
2.03
|
|
Chesapeake
Utilities Corporation and Subsidiaries
Condensed
Consolidated Balance Sheets (Unaudited)
|
Assets
|
|
June 30,
2019
|
|
December 31,
2018
|
(in thousands,
except shares and per share data)
|
|
|
|
|
Property,
Plant and Equipment
|
|
|
|
|
Regulated
Energy
|
|
$
|
1,380,591
|
|
|
$
|
1,297,416
|
|
Unregulated
Energy
|
|
245,738
|
|
|
237,682
|
|
Other businesses and
eliminations
|
|
30,347
|
|
|
34,585
|
|
Total property,
plant and equipment
|
|
1,656,676
|
|
|
1,569,683
|
|
Less:
Accumulated depreciation and amortization
|
|
(321,284)
|
|
|
(294,295)
|
|
Plus:
Construction work in progress
|
|
85,630
|
|
|
108,584
|
|
Net property,
plant and equipment
|
|
1,421,022
|
|
|
1,383,972
|
|
Current
Assets
|
|
|
|
|
Cash and cash
equivalents
|
|
7,254
|
|
|
6,089
|
|
Trade and other
receivables (less allowance for uncollectible accounts of $1,190
and $1,108, respectively)
|
|
48,908
|
|
|
85,404
|
|
Accrued
revenue
|
|
12,724
|
|
|
27,499
|
|
Propane inventory, at
average cost
|
|
5,143
|
|
|
9,791
|
|
Other inventory, at
average cost
|
|
7,778
|
|
|
7,127
|
|
Regulatory
assets
|
|
6,842
|
|
|
4,796
|
|
Storage gas
prepayments
|
|
4,143
|
|
|
6,603
|
|
Income taxes
receivable
|
|
10,984
|
|
|
15,300
|
|
Prepaid
expenses
|
|
5,873
|
|
|
10,079
|
|
Derivative assets, at
fair value
|
|
10,571
|
|
|
13,165
|
|
Other current
assets
|
|
4,022
|
|
|
5,684
|
|
Total current
assets
|
|
124,242
|
|
|
191,537
|
|
Deferred
Charges and Other Assets
|
|
|
|
|
Goodwill
|
|
25,785
|
|
|
25,837
|
|
Other intangible
assets, net
|
|
5,611
|
|
|
6,207
|
|
Investments, at fair
value
|
|
8,821
|
|
|
6,711
|
|
Operating lease
right-of-use assets (1)
|
|
12,404
|
|
|
—
|
|
Regulatory
assets
|
|
76,945
|
|
|
72,422
|
|
Other
assets
|
|
6,212
|
|
|
6,985
|
|
Total deferred
charges and other assets
|
|
135,778
|
|
|
118,162
|
|
Total
Assets
|
|
$
|
1,681,042
|
|
|
$
|
1,693,671
|
|
|
(1)
During the first quarter of 2019, the Company adopted a new
lease accounting standard, resulting in additional assets and
liabilities (both current and non-current portions) which total
$12.4 million at June 30, 2019.
|
Chesapeake
Utilities Corporation and Subsidiaries
Condensed
Consolidated Balance Sheets (Unaudited)
|
Capitalization and
Liabilities
|
|
June 30,
2019
|
|
December 31,
2018
|
(in thousands,
except shares and per share data)
|
|
|
|
|
Capitalization
|
|
|
|
|
Stockholders'
equity
|
|
|
|
|
Preferred stock, par
value $0.01 per share (authorized 2,000,000 shares), no shares
issued and outstanding
|
|
$
|
—
|
|
|
$
|
—
|
|
Common stock, par
value $0.4867 per share (authorized 50,000,000 shares)
|
|
7,984
|
|
|
7,971
|
|
Additional
paid-in capital
|
|
256,385
|
|
|
255,651
|
|
Retained
earnings
|
|
285,762
|
|
|
261,530
|
|
Accumulated
other comprehensive loss
|
|
(5,747)
|
|
|
(6,713)
|
|
Deferred
compensation obligation
|
|
4,694
|
|
|
3,854
|
|
Treasury
stock
|
|
(4,694)
|
|
|
(3,854)
|
|
Total
stockholders' equity
|
|
544,384
|
|
|
518,439
|
|
Long-term debt,
net of current maturities
|
|
275,924
|
|
|
316,020
|
|
Total
capitalization
|
|
820,308
|
|
|
834,459
|
|
Current
Liabilities
|
|
|
|
|
Current portion of
long-term debt
|
|
75,600
|
|
|
11,935
|
|
Short-term
borrowing
|
|
301,226
|
|
|
294,458
|
|
Accounts
payable
|
|
50,645
|
|
|
129,804
|
|
Customer deposits and
refunds
|
|
29,839
|
|
|
34,155
|
|
Accrued
interest
|
|
2,073
|
|
|
2,317
|
|
Dividends
payable
|
|
6,644
|
|
|
6,060
|
|
Accrued
compensation
|
|
8,699
|
|
|
13,923
|
|
Regulatory
liabilities
|
|
10,168
|
|
|
7,883
|
|
Derivative
liabilities, at fair value
|
|
10,994
|
|
|
14,871
|
|
Other accrued
liabilities (1)
|
|
16,527
|
|
|
12,828
|
|
Total current
liabilities
|
|
512,415
|
|
|
528,234
|
|
Deferred
Credits and Other Liabilities
|
|
|
|
|
Deferred income
taxes
|
|
164,421
|
|
|
156,820
|
|
Regulatory
liabilities
|
|
133,858
|
|
|
135,039
|
|
Environmental
liabilities
|
|
6,994
|
|
|
7,638
|
|
Other pension and
benefit costs
|
|
29,675
|
|
|
28,513
|
|
Operating lease -
liabilities (1)
|
|
10,710
|
|
|
—
|
|
Deferred investment
tax credits and other liabilities
|
|
2,661
|
|
|
2,968
|
|
Total deferred
credits and other liabilities
|
|
348,319
|
|
|
330,978
|
|
Total
Capitalization and Liabilities
|
|
$
|
1,681,042
|
|
|
$
|
1,693,671
|
|
|
(1) During the
first quarter of 2019, the Company adopted a new lease accounting
standard, resulting in additional assets and liabilities (both
current and non-current portions) which total $12.4 million at
June 30, 2019.
|
Chesapeake
Utilities Corporation and Subsidiaries
Distribution
Utility Statistical Data (Unaudited)
|
|
|
For the Three
Months Ended June 30, 2019
|
|
For the Three
Months Ended June 30, 2018
|
|
|
Delmarva NG
Distribution
|
|
Chesapeake
Utilities Florida NG Division
|
|
FPU NG
Distribution
|
|
FPU Electric
Distribution
|
|
Delmarva NG
Distribution
|
|
Chesapeake
Utilities Florida NG Division
|
|
FPU NG
Distribution
|
|
FPU Electric
Distribution
|
Operating
Revenues
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
10,444
|
|
|
$
|
1,511
|
|
|
$
|
7,457
|
|
|
$
|
10,801
|
|
|
$
|
14,007
|
|
|
$
|
1,459
|
|
|
$
|
7,713
|
|
|
$
|
9,814
|
|
Commercial
|
|
6,353
|
|
|
1,587
|
|
|
6,633
|
|
|
9,807
|
|
|
7,752
|
|
|
1,524
|
|
|
6,809
|
|
|
9,709
|
|
Industrial
|
|
1,773
|
|
|
3,122
|
|
|
6,062
|
|
|
416
|
|
|
1,987
|
|
|
2,854
|
|
|
5,218
|
|
|
371
|
|
Other
(1)
|
|
(3,647)
|
|
|
795
|
|
|
(1,489)
|
|
|
(560)
|
|
|
(3,496)
|
|
|
480
|
|
|
(1,459)
|
|
|
(1,532)
|
|
Total Operating
Revenues
|
|
$
|
14,923
|
|
|
$
|
7,015
|
|
|
$
|
18,663
|
|
|
$
|
20,464
|
|
|
$
|
20,250
|
|
|
$
|
6,317
|
|
|
$
|
18,281
|
|
|
$
|
18,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume (in Dts
for natural gas and KWHs for electric)
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
558,159
|
|
|
83,315
|
|
|
317,025
|
|
|
72,358
|
|
|
759,202
|
|
|
85,526
|
|
|
329,284
|
|
|
66,682
|
|
Commercial
|
|
673,689
|
|
|
1,143,877
|
|
|
426,555
|
|
|
79,540
|
|
|
711,690
|
|
|
1,134,555
|
|
|
432,192
|
|
|
73,276
|
|
Industrial
|
|
1,216,120
|
|
|
7,065,699
|
|
|
1,226,774
|
|
|
3,173
|
|
|
1,308,129
|
|
|
7,024,154
|
|
|
1,245,950
|
|
|
3,540
|
|
Other
|
|
60,515
|
|
|
—
|
|
|
634,071
|
|
|
—
|
|
|
17,759
|
|
|
—
|
|
|
463,846
|
|
|
1,907
|
|
Total
|
|
2,508,483
|
|
|
8,292,891
|
|
|
2,604,425
|
|
|
155,071
|
|
|
2,796,780
|
|
|
8,244,235
|
|
|
2,471,272
|
|
|
145,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
Customers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
73,666
|
|
|
17,205
|
|
|
57,504
|
|
|
24,530
|
|
|
71,038
|
|
|
16,391
|
|
|
55,580
|
|
|
24,714
|
|
Commercial(2)
|
|
7,085
|
|
|
1,544
|
|
|
3,937
|
|
|
7,228
|
|
|
6,994
|
|
|
1,517
|
|
|
3,932
|
|
|
7,493
|
|
Industrial(2)
|
|
168
|
|
|
17
|
|
|
2,435
|
|
|
2
|
|
|
155
|
|
|
16
|
|
|
2,284
|
|
|
2
|
|
Other
|
|
16
|
|
|
—
|
|
|
12
|
|
|
—
|
|
|
4
|
|
|
—
|
|
|
11
|
|
|
—
|
|
Total
|
|
80,935
|
|
|
18,766
|
|
|
63,888
|
|
|
31,760
|
|
|
78,191
|
|
|
17,924
|
|
|
61,807
|
|
|
32,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months
Ended June 30, 2019
|
|
For the Six Months
Ended June 30, 2018
|
|
|
Delmarva NG
Distribution
|
|
Chesapeake
Utilities Florida NG Division
|
|
FPU NG
Distribution
|
|
FPU Electric
Distribution
|
|
Delmarva NG
Distribution
|
|
Chesapeake
Utilities Florida NG Division
|
|
FPU NG
Distribution
|
|
FPU Electric
Distribution
|
Operating
Revenues
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
40,414
|
|
|
$
|
3,297
|
|
|
$
|
18,177
|
|
|
$
|
20,661
|
|
|
$
|
49,321
|
|
|
$
|
3,219
|
|
|
$
|
18,888
|
|
|
$
|
21,346
|
|
Commercial
|
|
19,494
|
|
|
3,325
|
|
|
14,336
|
|
|
17,622
|
|
|
23,582
|
|
|
3,246
|
|
|
15,135
|
|
|
18,866
|
|
Industrial
|
|
4,162
|
|
|
6,387
|
|
|
12,060
|
|
|
1,026
|
|
|
4,293
|
|
|
4,725
|
|
|
11,590
|
|
|
771
|
|
Other
(1)
|
|
(4,468)
|
|
|
1,906
|
|
|
(2,123)
|
|
|
(4,467)
|
|
|
(5,239)
|
|
|
990
|
|
|
(4,119)
|
|
|
(3,880)
|
|
Total Operating
Revenues
|
|
$
|
59,602
|
|
|
$
|
14,915
|
|
|
$
|
42,450
|
|
|
$
|
34,842
|
|
|
$
|
71,957
|
|
|
$
|
12,180
|
|
|
$
|
41,494
|
|
|
$
|
37,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume (in Dts
for natural gas and KWHs for electric)
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
2,778,534
|
|
|
216,187
|
|
|
822,351
|
|
|
137,869
|
|
|
2,999,757
|
|
|
226,285
|
|
|
852,346
|
|
|
145,210
|
|
Commercial
|
|
2,327,009
|
|
|
2,392,641
|
|
|
930,601
|
|
|
141,369
|
|
|
2,417,116
|
|
|
2,374,462
|
|
|
967,736
|
|
|
141,015
|
|
Industrial
|
|
2,727,428
|
|
|
14,399,549
|
|
|
2,574,011
|
|
|
10,923
|
|
|
2,817,168
|
|
|
10,089,859
|
|
|
2,550,480
|
|
|
8,060
|
|
Other
|
|
78,374
|
|
|
—
|
|
|
1,189,462
|
|
|
—
|
|
|
30,292
|
|
|
—
|
|
|
984,353
|
|
|
3,803
|
|
Total
|
|
7,911,345
|
|
|
17,008,377
|
|
|
5,516,425
|
|
|
290,161
|
|
|
8,264,333
|
|
|
12,690,606
|
|
|
5,354,915
|
|
|
298,088
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
Customers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
73,821
|
|
|
17,097
|
|
|
57,166
|
|
|
24,455
|
|
|
71,136
|
|
|
16,307
|
|
|
55,430
|
|
|
24,679
|
|
Commercial(2)
|
|
7,116
|
|
|
1,537
|
|
|
3,917
|
|
|
7,230
|
|
|
7,009
|
|
|
1,509
|
|
|
3,930
|
|
|
7,487
|
|
Industrial(2)
|
|
168
|
|
|
17
|
|
|
2,425
|
|
|
2
|
|
|
154
|
|
|
16
|
|
|
2,268
|
|
|
2
|
|
Other
|
|
12
|
|
|
—
|
|
|
12
|
|
|
—
|
|
|
5
|
|
|
—
|
|
|
14
|
|
|
—
|
|
Total
|
|
81,117
|
|
|
18,651
|
|
|
63,520
|
|
|
31,687
|
|
|
78,304
|
|
|
17,832
|
|
|
61,642
|
|
|
32,168
|
|
|
(1)
Operating Revenues from "Other" sources include unbilled revenue,
under (over) recoveries of fuel cost, conservation revenue, other
miscellaneous charges, fees for billing services provided to third
parties, and adjustments or changes in taxes, such as the TCJA,
which are passed through to customers. This amount also includes
the reserve for estimated customer refunds associated with the
TCJA.
|
(2)
Certain volumes and customers have been reclassified when compared
to the prior year for consistency with current year
presentation.
|
View original
content:http://www.prnewswire.com/news-releases/chesapeake-utilities-corporation-reports-second-quarter-2019-results-300898579.html
SOURCE Chesapeake Utilities Corporation